Why would the market economy produce too little education?
What will be an ideal response?
The markets for education will produce less than the efficient quantity because consumers of education take account of only the benefits that accrue to them. They ignore the marginal external benefit that others gain. Therefore the consumers' demand for education is less than the marginal social benefit from education.
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Suppose a country institutes an investment tax credit and that leads to an initial increase in investment spending of $100 billion. Suppose the multiplier is 1.5 and the economy's real GDP is $5,000 billion. This action is
A) expansionary and will shift the aggregate demand curve to the right by $750 billion. B) expansionary and will shift the aggregate demand curve to the right by $150 billion. C) expansionary and will shift the aggregate demand curve to the left by $7500 billion. D) expansionary and will shift the aggregate demand curve to the left by $150 billion.
A decrease in input costs in the production of LCD televisions caused the price of LCD televisions to decrease. Holding everything else constant, how would this affect the market for video game consoles (a complement to LCD televisions)?
A) The supply of video game consoles would increase and the equilibrium price of video game consoles would decrease. B) The demand for video game consoles would decrease and the equilibrium price of video game consoles would decrease. C) The demand for video game consoles would decrease because consumers could afford to buy fewer LCD televisions and video game consoles. D) The demand for video game consoles would increase and the equilibrium price of video game consoles would increase.